Partner London
"Whilst arising in different contexts, these judgments collectively show that the English courts are taking a robust yet flexible approach to sanctions, applying them in a practical and fact-sensitive way rather than as blunt instruments and interpreting them purposely in light of both their text and underlying objectives."
Whilst arising in different contexts, these judgments collectively show that the English courts are taking a robust yet flexible approach to sanctions, applying them in a practical and fact-sensitive way rather than as blunt instruments and interpreting them purposely in light of both their text and underlying objectives.
Ownership and control: Mints’ disproportionately wide net
The first and most striking development is the manner in which the courts have treated the concept of ‘ownership’ and ‘control’ for the purposes of UK and/or EU sanctions.
In Mints, the Court of Appeal considered a US$850m claim brought by two Russian banks against Boris Mints and his sons for allegedly conspiring to execute uncommercial transactions. Following Russia’s invasion of Ukraine, PJSC Bank Okritie Financial Corporation became subject to UK sanctions and an asset freeze. The defendants applied for a stay, arguing that sanctions would prevent judgment being entered and cause prejudice, including the claimants’ inability to satisfy adverse costs orders. The High Court dismissed the defendants’ application.
On appeal, the Court of Appeal dealt with, among others, the issue of ‘control’ in connection with the two Russian banks by reference to Bank Okritie and President Vladimir Putin’s designation under the Russia (Sanctions) (EU Exit) Regulations 2019/855 (the “UK Russian Sanctions Regulations”).
Pursuant to Regulation 7 of the UK Russian Sanctions Regulations, two criteria determine whether a person “owns” or “controls” an entity:
- the first criterion applies where an individual directly or indirectly holds more than 50% of the shares or voting rights, or possesses the authority to appoint or remove a majority of the entity’s board of directors; and
- the second criterion is broader: it asks whether, considering all relevant circumstances, it is reasonable to expect that the person could, if they chose to, generally or in significant respects, ensure that the entity’s affairs are conducted according to their wishes—by any means, whether direct or indirect.
The Court of Appeal commented obiter dicta that the second criterion is “framed in wide terms” and imposes no restriction on the methods by which a designated person might exert control. Applying this expansive interpretation, the court concluded that PJSC National Trust Bank – a subsidiary of the Central Bank of Russia – was under the ‘control’ of President Vladimir Putin, concluding that it was reasonable to infer that President Putin could, if he wished, ‘call the shots’ regarding the bank’s operations and that President Putin could be deemed to control ‘everything in Russia’.
The Court of Appeal also found that the entry of judgment in favour of a designated person is not itself prohibited, and that a licence granted by the Office of Financial Sanctions Implementation (“OFSI”) could be used to manage costs, security and enforcement.
Whilst the above-referenced comments were not binding, the decision in Mints caused considerable confusion amongst multinational companies and Russian entities, and/or individuals, who were not designated persons and who did not have a nexus to the Russian government or designated individuals. In this regard, the Court of Appeal’s findings risked (i) sweeping up all Russian entities and/or individuals into the UK Russia Sanctions Regulations’ framework; and (ii) all UK entities and/or individuals from being prohibited from dealing with any Russian entity in the absence of an OFSI licence or exception.
Nonetheless, Mints underscores that apparently routine civil litigation can result in unintentional and overly broad outcomes with respect to the applicability of sanctions regimes to parties’ contractual bargains. The court’s finding that ‘ownership’ or ‘control’ could be inferred from political office (i.e. the presidential office) or remote proximity to a designated individual may suffice.¹
Suspension of obligations
A second development in the English courts’ approach to Russian sanctions is their interpretation and treatment of the suspension of payment obligations.
The Supreme Court’s decision in UniCredit Bank GmbH v Celestial Aviation Services Ltd and UniCredit Bank GmbH v Constitution Aircraft Leasing (Ireland) 3 Ltd and another [2026] UKSC 10 (“Celestial Aviation”) provides the clearest articulation of this trend to date.
The case concerned 12 standby letters of credit issued by the London branch of UniCredit, as security for civilian aircraft leases to Russian airlines by Celestial Aviation and other lessor entities. Following termination of the leases and the introduction of Russian sanctions in March 2022, UniCredit – the confirming bank – refused to process payments, on the basis that performance was prohibited because the underlying transactions involved ‘restricted goods’. Although UK and EU authorities later granted licences covering the principal sums, outstanding issues remained as to liability for interest and costs.
The Supreme Court addressed three principal questions:
- whether payment under the letters of credit was prohibited by Regulation 28(3)(c) of the UK Russian Sanctions Regulations;
- whether the leases constituted ‘relevant arrangements’ for the purposes of Regulation 28(3)(c), despite being lawful when entered into; and
- whether section 44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) protected the bank from civil liability for non-payment.
In a departure from the High Court’s initial narrow interpretation, the Supreme Court upheld the decision of the Court of Appeal and as with Mints, adopted a broad and purposive interpretation of the UK Russian sanctions regime. The Supreme Court dismissed the lessors’ appeal and allowed UniCredit’s cross-appeal, unanimously deciding that payment was prohibited absent a licence, as the obligation was ‘in connection with’ a prohibited arrangement – namely, the supply of aircraft for use in Russia.
Key contacts
"Crucially, the court held that this statutory language requires only a factual nexus, not a causal link, thereby broadening the scope of the prohibition which the Supreme Court found must have been the intention of the UK legislature."
Crucially, the court held that this statutory language requires only a factual nexus, not a causal link, thereby broadening the scope of the prohibition which the Supreme Court found must have been the intention of the UK legislature. The Supreme Court considered the overarching purpose of Regulation 28(3)(c) and emphasised that the objective of the Regulations is to advance public policy aims, including exerting economic pressure in response to geopolitical events. Regulation 28(3) should be interpreted broadly and extends to a wide category of financial services connected with Russia.
As a result, UniCredit’s payment obligations were suspended during the period in which performance would have breached sanctions. The court also confirmed that section 44 of SAMLA would have protected UniCredit from liability for an action to recover a debt, interest during the non-payment period, and an award of associated costs, where UniCredit acted in the reasonable belief that payment was prohibited by Regulation 28(3)(c).
The decision in Celestial Aviation highlights a clear judicial trend towards a broad, policy-driven construction of UK sanctions legislation, with English judges interpreting the phrase ‘in connection with’ an arrangement as capturing any factual link between a financial payment and a prohibited arrangement, regardless of causation. Significantly, Celestial Aviation demonstrates that even obligations ordinarily regarded as absolute in their independence – such as letters of credit – may lawfully be suspended, even if retrospectively and despite the issuance of a sanctions licence. This reasoning confirms that even highly standardised financing instruments are not immune to sanctions-driven disruption and that commercial expectations of certainty may yield when payment would, without a licence, breach a sanctions prohibition (here, the UK Russia Sanctions Regulations).
Enforcement of on demand bonds: substance over form and the ghost of Ralli Bros
If Mints and Celestial Aviation illustrate how sanctions affect the identity of counterparties and the enforceability of payment obligations, EuroChem demonstrates the impact sanctions can have on the underlying enforceability of English-law governed bond instruments even when a contracting party is not designated.
The dispute related to six on demand bonds, governed by English law, that were issued by Société Générale and ING Bank in favour of LLC EuroChem North-West-2 for the construction of a fertilizer plant in Kingisepp, Russia. Following Russia’s invasion of Ukraine, the EU imposed sanctions under Council Regulation (EU) No 269/2014 (as amended) (“EU Regulation 269”) on Andrey Melnichenko, the founder of EuroChem Group, his wife Aleksandra Melnichenko and Vladimir Rashevsky, then CEO of EuroChem Group.²
As a result, Tecnimont S.p.A. which, together with its Russian affiliate LLC MT Russia, was contracted by LLC EuroChem to construct the fertiliser plant, suspended its services under the relevant contracts on the basis that their performance would constitute a violation of, among others, Regulation 269. When EuroChem NW2 made demands under the respective bonds, Société Générale and ING Bank refused to comply, arguing that pursuant to the decision in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287, the on demand guarantees were not enforceable, as their performance was rendered illegal as a result of the designations of Mr and Mrs Melnichenko and Mr Rashevsky.
Mr Justice Bright held that EuroChem was both owned and controlled by Mr Melnichenko, notwithstanding a nominally independent discretionary trust structure and the involvement of Mrs Melnichenko as a supposed beneficial owner. The judge emphasised that substance over form, namely the overarching documentary and factual evidence, showed that Mr Melnichenko retained de facto control, and that the trust structuring was ineffective to displace the EU sanctions, such that the decision in Ralli Bros would apply.
In this regard, the judge found that notwithstanding that the claimants were not designated entities: (i) the place of performance of the on demand bonds was where their demand must be made and payment effected (e.g. France and Italy), not where the beneficiary was located (i.e. Russia); (ii) despite purportedly relinquishing control and/or ownership of the EuroChem group, the evidence showed that Mr Melnichenko had de facto control of EuroChem NW2 and of its assets including the on demand bonds; (iii) the evidence showed that Mrs Melnichenko was a mere proxy of Mr Melnichenko; (iv) paying EuroChem would therefore breach both Article 2 of Regulation 269 and Article 11 of Council Regulation (EU) No 833/2014 (“EU Regulation 833”); and (v) even if Ralli Bros did not strictly apply, a sufficiently serious breach of foreign sanctions law could make enforcement contrary to English public policy because of comity and the real risk of criminal penalties abroad.³
The judgment in EuroChem reflects a realistic, cross-border approach to performance. English courts will assess sanctions compliance not only in relation to the governing law, but also in respect of the practical mechanics of payment, by reference to the place in which contractual performance will occur. In addition, English courts are prepared to look beyond formal ownership structures and will treat de facto ownership and control as overriding any attempts to restructure an entity to avoid the application of UK or EU sanctions.
Sanctions do not displace the English courts’ upholding of arbitration agreements
A different but complementary thread emerges from the Supreme Court’s reasoning in UniCredit v RusChemAlliance. The dispute arose out of the construction of liquified natural gas and gas processing plants in Russia – the Ust-Luga project – in which RusChemAlliance was a primary project company. UniCredit, through its Russian branch, had issued a series of on demand bonds worth approximately €440m as part of the financing and EPC contracting structure supporting the project. These instruments were governed by English law and disputes were subject to Paris-seated ICC arbitration agreements. Though RusChemAlliance was not subjected to UK and/or EU sanctions, the contractor suspended performance due to the imposition of EU sanctions against Russia. UniCredit also refused to pay on the ground that payment was prohibited by Article 11 of EU Regulation 833.
Here, the issue was not the enforceability of payment obligations but the sanctity of arbitration agreements in Russia-related disputes. When UniCredit refused to pay under the on demand bonds, RusChemAlliance commenced proceedings in Russia in breach of the Paris-seated ICC arbitration agreements. The UK Supreme Court upheld the grant of an anti-suit injunction, stressing that English courts will continue to protect arbitration agreements robustly, even in politically sensitive contexts.
Importantly, the Supreme Court stressed that foreign mandatory laws – namely, Russian legislative provisions designed to override foreign arbitration agreements – cannot unilaterally override the parties’ agreement to arbitrate.⁴ Nor did the court accept RusChemAlliance’s contention that the Russian sanctions landscape made the arbitration “incapable of being performed”. It confirmed that the threshold for establishing impossibility is high and concerns the objective feasibility of the arbitral process, not its commercial inconvenience. Sanctions-related difficulties would not render arbitration unworkable.
Designation criteria: how wide is the net for individuals?
A recent High Court decision further extenuates the malleability of the English courts to interpreting and applying sanctions legislation, including the lawfulness of the designation criteria themselves.
In Ismailov v Secretary of State for Foreign, Commonwealth and Development Affairs [2026] EWHC 1188 (Admin) (“Ismailov”), the High Court dismissed a statutory review challenge under section 38(1) of SAMLA brought by Sarvar Ismailov, the nephew of Alisher Usmanov, a designated individual. The claimant, a UK resident since the age of 13 with no political connections to Russia and no personal wrongdoing alleged, had been designated in July 2022 following amendments introduced by the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 to the UK Russian Sanctions Regulations. Those amendments expanded the definition of ‘associated with’ under Regulation 6(2)(d) of the UK Russian Sanctions Regulations to include ‘immediate family members’, expressly encompassing nieces and nephews of sanctioned individuals.
Mr Ismailov argued, among other things, that it was disproportionate to impose sanctions on an individual solely based on his familial connection to Mr Usmanov, in the absence of any personal involvement in, or contribution to, Russian state activities, policies or Mr Usmanov himself. The court also rejected this assessment. Instead, the court placed significant weight on the government’s judgment on matters of foreign policy and sanctions, and subsequently reaffirmed that these are areas where the executive, rather than the judiciary, is best placed to assess necessity and impact.
Viewed in context, Ismailov is qualitatively different from the preceding authorities. Whereas Mints, Celestial Aviation, EuroChem and RusChemAlliance are concerned with the indirect commercial effects of sanctions, Ismailov addresses the foundations of the sanctions regime itself – namely, who may lawfully be designated and on what basis.
The decision makes clear that, once the executive has exercised its designation powers, the English courts will be slow to interfere, even when the connection between the designated individual and the underlying public policy objective is attenuated. This stands in contrast to commercial designations, where the courts have shown themselves willing to interrogate issues of control, illegality and performance with considerable intensity.
Accordingly, Ismailov illustrates an important boundary: whilst English courts will adopt a robust and interventionist approach in applying sanctions to contractual disputes, they appear to be markedly deferential when reviewing the legality of the sanctions regime itself – particularly in respect of designations of individuals.
"Taken together, these cases show that the English courts are adopting a consistent and practical approach to sanctions."
Conclusion
Taken together, these cases show that the English courts are adopting a consistent and practical approach to sanctions. In commercial disputes, the courts are willing to interpret sanctions broadly, focusing on substance over form and accepting that sanctions can suspend or disrupt even unconditional obligations, such as payment under on demand bonds or letters of credit. At the same time, they draw clear limits: arbitration agreements and jurisdiction clauses remain firmly enforced, and parties cannot rely on sanctions or foreign laws to sidestep them.
Ismailov sits slightly apart and clarifies how the English courts will assess the designation criteria of individual designations, showing that the courts appear to take a more deferential approach by applying strictly the criteria enshrined by the UK legislature.
Looking ahead, as sanctions regimes continue to expand and become more complex, the English courts are likely to face increasingly nuanced disputes at the intersection of cross-border commercial contracts, geopolitical sensitivities and the designation of individuals. The judgments covered by this article suggest that they will continue to favour a pragmatic, effects-driven approach that gives weight to the underlying public policy behind sanctions, while preserving principles of commercial certainty, party autonomy and public policy.
[1] The Mints parties sought permission to appeal to the Supreme Court, but subsequently withdrew their application.
[2] Council Regulation (EU) No 269/2014 (as amended) imposes targeted restricted measures against designated persons and entities in connection with actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, including asset freezes and prohibitions on making funds or economic resources available to them.
[3] Council Regulation (EU) No 833/2014 (as amended) establishes sectorial sanctions against Russia, targeting key areas such as finance, energy, defence, and trade, through restrictions on, among others, exports of dual-use goods and technology, and the provision of specified services to Russian persons and entities. Article 11 of EU Regulation 833 contains a “no-claims” provision, prohibiting the satisfaction of claims brought by certain Russian persons or entities in connection with contracts or transactions whose performance has been affected, directly or indirectly, by EU sanctions.
[4] An example of the restrictive measures introduced by Russian legislation include Articles 248.1 and 248.2 of the Russian Arbitrazh Procedural Code, which was itself introduced by Federal Law No. 171-FZ (2020) commonly referred to as the ‘Lugovoy Law’.
Key contacts
Partner London
Senior Associate Dubai
Associate Dubai
Associate Dubai
